DEALTALK-Stiritz puts track record on line in diversifying Post

Fri May 2, 2014 3:38pm EDT

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By Olivia Oran

May 2 (Reuters) - By rolling up food brands, selling off unrelated businesses and spinning off consumer products companies, Post Holdings Chief Executive Officer Bill Stiritz has built a track record over the past 30 years that ranks among the best on Wall Street.

His latest moves at Post are putting his reputation on the line. Over the last 12 months, Stiritz has spent nearly $4 billion on seven acquisitions. They include deals that some analysts and investors say are unfocused and that don't fit into a coherent strategy to turn around the century-old cereal maker.

Post's most recent deal and its largest to date is the $2.5 billion acquisition of Michael Foods, a food processor and distributor. Synergies are limited between the two companies, said Wells Fargo analyst John Baumgartner in a research note, and the debt that Post has taken on to finance the transaction will limit its ability to conduct future deals.

But it's difficult to bet against Stiritz. Since he took over the reins of Post when Ralcorp spun off the cereal maker in 2012, its stock has nearly doubled to more than $52.

"He's the one reason you would invest in Post," said Scott Harrison, a portfolio manager at Argent Capital in St. Louis. "Most folks know of Warren Buffett, but not most know about Bill Stiritz. But if you look at his track record and ability to generate shareholder value, it's second to none."

There is no question that Stiritz's challenge is formidable, something even he admits.

"Post isn't in the game for small change. We are looking at transformation," Stiritz told Reuters on Friday. "It's hard to judge transformation midstream ... this is not the first time outsiders have questioned my moves."

With fewer consumers reaching for Honey Bunches of Oats, Raisin Bran and other Post cereals, Stiritz is taking the company into shakes, protein bars and other categories with higher growth potential by acquiring companies such as PowerBar and Dymatize.

The Michael Foods deal brings Post more of the breakfast items that consumers are favoring, such as eggs and dairy, while also doubling its size.

If he succeeds in transforming Post into a diversified packaged food manufacturer, Stiritz will be able to compete with the likes of General Mills Inc and Kellogg Co while being able to scoop up even bigger companies.

"He's like an activist investor who sits within a business as opposed to entrenched management who become staid and bureaucratic," said Pat Mulcahy, the former CEO and current chairman of Energizer Holdings Inc, who has known Stiritz since 1967.

VALUE CREATOR

Raised in rural Arkansas by his grandparents, Stiritz, now 79, dropped out of the University of Arkansas after just a year to join the Navy. He attended Northwestern University and received a master's degree in European history at St. Louis University.

Stiritz spent nearly 20 years at Ralston Purina before rising to become CEO of the pet food company in 1981. While at Ralston, Stiritz sold off a slew of businesses he didn't view as core, including the National Hockey League's St. Louis Blues. He also acquired the Energizer battery brand.

In 2000, Stiritz spun off Energizer, sold Ralston's pet food business to Nestle and spun off the food business into Ralcorp, a private-label food company. He became chairman of Ralcorp in 1994 and served until the company was sold to ConAgra in 2012 for $6.8 billion including debt. Stiritz then joined the Post business as CEO after it was spun out.

Ralcorp stock more than tripled during his tenure from 1994 until early February 2012.

"He's constantly looking at ways to add value," said Peter Barlas, a portfolio manager at KJ Harrison & Partners in Toronto who is a Post shareholder. "He's spinning things off, he's buying things, he's not married to any assets, he's just doing what's best for shareholders."

INSPIRED BY KRAVIS

Friends say Stiritz was inspired by private equity pioneers such as Henry Kravis who made their fortune during the early 1980s taking on debt to finance acquisitions. He was also a proponent of repurchasing shares. Both practices were relatively uncommon among consumer companies during that time, including at Ralston Purina before Stiritz took the helm.

Those who have worked with Stiritz on transactions say he moves swiftly and deliberately on his targets and doesn't need a lengthy committee process to vet deals.

"Bill's idea in his business career was to look for things that people don't see," said David Hoover, the former CEO of Ball Corp who served under Stiritz on the Energizer board. "The idea of a big permanent portfolio wasn't for him -he's about creating value."

Stiritz receives a $1 base salary at Post, with the rest of his compensation coming from stock options.

A deeply private man, Stiritz avoids the limelight. Friends say he's given up golf but owns several racehorses. He chooses to give away his money quietly to causes such as Washington University-St. Louis where his wife Susan is a lecturer.

In perhaps the most public move of his career, Stiritz disclosed earlier this year that he had a more than 7 percent stake in Herbalife Ltd, the controversial nutritional company that hedge fund manager Bill Ackman has accused of fraud.

In the past, Stiritz said he would consider participating in a leveraged buyout of Herbalife. Stiritz, the third largest Herbalife shareholder, declined to comment on his reasons for investing in Herbalife beyond public filings, but those close to him say it goes back to his strategy of betting against conventional wisdom.

Analysts say Post's aggressive acquisition strategy is crucial to the company's future as the cereal category declines.

Stiritz's model for Post "doesn't seem consistent with classic MBA thinking, but this is a bolder strategy for sure," said Bruce Cohen, head of the private equity and strategy practice at Kurt Salmon, a San Francisco consulting firm. "But given his starting position, he has to be bold." (Reporting by Olivia Oran; Editing by Paul Simao and Tom Brown)

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